The part of a legally binding promise to lend that the borrower has not drawn yet, such as the open amount on a line of credit or the unfunded balance of a construction loan.
When a bank closes a $2,000,000 construction loan and has funded $500,000, the other $1,500,000 is an unused commitment. The same is true of the undrawn part of a business line of credit. The capital rule defines a commitment as any legally binding arrangement that obligates the bank to extend credit.
Undrawn money still costs the bank capital. To work out risk-weighted assets, a bank multiplies the unused amount by a conversion factor: zero if the bank can cancel the commitment at any time without cause, 20 percent if the original maturity is one year or less, and 50 percent if it is longer. That is one reason short lines that renew each year are common, and why a bank may charge a fee on the unused part of a line.
Unused commitments also count toward the lending limit. For a national bank, a legally binding written commitment that was within the limit when made is included in the borrower’s total, drawn or not. A borrower with a large undrawn line has already used up that much of the bank’s room.
How it shows up in the data here
Each bank page shows Unused CRE commitments: the dollars the bank has committed to lend on commercial real estate that are not yet drawn, from its Call Report, with the change from a year earlier when it rose. Bank Call Reports do not list loans made, so this is one of the few public signs of lending still to come. Credit union pages do not carry it. Start with construction lenders.
Go further
- Construction lenders: Banks and credit unions that hold construction and land loans.
- Search lenders: Banks flagged as construction lenders.
- Legal lending limit estimate: The most a bank can lend to one borrower, from public capital figures. Always an estimate.
- How to read a bank call report as a loan searcher: Every bank files a call report each quarter. One schedule in it lists the bank's loans by kind. Read that schedule and you know what the bank holds. You still do not know what it made last quarter.
- The legal lending limit, explained: A bank may not lend more than a set share of its capital to one borrower. The rule explains why a large loan gets shared, and why a lender can say a request is too big for it.
- Construction loan package checklist: A construction lender is lending against a building that does not exist yet. The package has to show what it will cost, who will build it, where every dollar comes from, and how the loan gets repaid when it is done.
Related terms
- Standby letter of credit: A bank's written promise to pay a third party if the bank's customer does not repay a debt or does not perform an obligation.
- Legal lending limit: The most a bank may have outstanding to one borrower by law. For national banks it is 15 percent of capital and surplus, plus 10 percent more when the extra is fully secured by readily marketable collateral.
- Loans to one borrower: The total a bank counts against its lending limit for one borrower: loans, binding commitments and standby letters of credit, plus loans to related parties that the rules combine.
- Construction loan: A short-term loan that pays for building or renovating a property, advanced in stages as work is finished and repaid from a sale or a permanent loan.
- Line of credit: A commitment from a lender to advance money up to a set limit, which a business can draw, repay and draw again as its cash needs rise and fall.
- Construction draw: One advance of construction loan money, released after the lender confirms that the work it pays for is in place.
Sources
- 12 CFR 324.2, capital rule definitions, retrieved .
- 12 CFR 324.33, off-balance sheet exposures, retrieved .
- 12 CFR 32.2, lending limit definitions, retrieved .
- FDIC BankFind Suite API, financial data field definitions, retrieved .
Plain definitions for orientation, not legal, tax or credit advice. A lender's own policy decides what it will do.